JR Smith will be an Unrestricted Free Agent. JR Smith has been a Knick for 2 years. Since Knicks are over the cap, they can only sign Smith with a salary cap exception. The best one for the Knicks to use is the "Early Bird exception", as explained below:

So the Knicks can pay JR Smith basically an MLE contract. That's the most they can pay him. Will JR Smith accept this or try to get more somewhere else? I believe JR will remain a Knick and accept the MLE contract. I also have trouble seeing another team "taking a chance" on giving JR a huge contract, because of his history.

I think they pay him this with an out to pay him slightly more if he deserves it the next year. The new economics of the NBA don't pay people like JR $10 a year. If you're a big, maybe. If you're a SG who is off and on, no.